UK businesses have been given an extra year to prepare for the digitalisation of income tax, HMRC has announced

Recognising the challenges faced by many businesses and their representatives as the country emerges from the pandemic, and having listened to stakeholder feedback, the government will introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) a year later than planned, in the tax year beginning in April 2024.

HMRC said a later start for MTD for ITSA gives those required to join more time to prepare, and for it to deliver a more robust service.

Forming part of the government’s ambition to become one of the most digitally advanced tax authorities in the world, MTD is the first phase of HMRC's move towards a modern, digital tax service fit for the 21st century.

Lucy Frazer, Financial Secretary to the Treasury, said: The digital tax system we are building will be more efficient, make it easier for customers to get tax right, and bring wider benefits in increased productivity.

“But we recognise that, as we emerge from the pandemic, it’s critical that everyone has enough time to prepare for the change, which is why we’re giving people an extra year to do so.

“We remain firmly committed to Making Tax Digital and building a tax system fit for the 21stcentury.”

MTD for ITSA will be mandated for businesses and landlords with a business income over £10,000 per annum in the tax year beginning in April 2024.

General partnerships will not be required to join MTD for ITSA until the tax year beginning in April 2025, while the date other types of partnerships will be required to join will be confirmed at a later date.

In March 2020, the government announced a new, fairer system of penalties for the late filing and late payment of tax for ITSA. The new penalty system for those who are mandated for MTD for ITSA will now come into effect in the tax year beginning in April 2024, and in the tax year beginning in April 2025 for all other ITSA taxpayers.

HMRC stressed that eligible businesses and landlords will have the opportunity to gain the benefits of MTD early by signing up to the pilot, which is already underway and will be gradually expanded during 2022-23 ready for larger-scale testing in 2023-24.

Collaboration with tax professionals and customers has been key in the development of MTD, and HMRC emphasised it has worked closely with partners in the business and tax communities on the proposed design and scope of MTD for ITSA.